May 4, 2012

At WIT’s End

The strange case of shooting oneself in the foot on Welfare-Immigration-Taxes
It doesn’t take rocket science to W-I-Tness! the below unwritten orientation in the United States:


Have lavish welfare policies. Then try to control the number of recipients by having largely "illegal" immigrants and keeping them in that “status”.


When unemployment happens, have uproar against "illegal", low paid immigration. The Government do nothing about the undocumented immigration that nobody really cares about or the jobs they do, but get the hint and drastically cut down on the legal.


Low effective tax rates for everything but the income of an individual earned through real world work or business (as opposed to finance and corporate taxes), except when a lot of debt is used, even if for relatively non economic things like buying a house.

A Dysfunctional Complex

The above complex is impossible to maintain. If the immigration is all in low wage employment, at low rates on everything but real economy individual income, there is not enough in economic activity and taxes to fund welfare. And a funny situation emerges. At some point, these people become legal citizens, and then there is a huge electorate proportion that clamors for, and cannot do without welfare, but the income demographics of workers is that welfare is just not possible to dole. So, the political need for welfare going up, while the ability of the economy and tax collection to deliver it going down.

Do the Opposite


Have modest welfare policies. If any welfare component, say social security, is going to dilute, start now rather than do all of it in a single shot 20 years later. For instance, social security payments could be cut 3% every year for next 20 years, while also cutting social security taxes by 2% every year. This way, a young person today, knows that s/he is in for much lower social security payment when s/he retires, but is also seeing a tax (contribution) cut through all these years.

Likewise, keep unemployment insurance modest and reduce the payment gradually each month, except any food stamps in the mix.

Cut unnecessary Government functions. For example, in the next section, I argue that skilled immigration can be entrusted to a computer, without harming the interest of domestic “US workers” if it is done in a quasi-market manner - rather than an army of Government Bureaucrats applying their “knowledge” and queer rules in deciding individual cases.


Current high skill immigration involves Government Bureaucrats opening each immigrant's file to determine if that specific person (= bundle of skills and foreign qualification) immigrating will displace a “US worker”. They have really no clue as to whom to pass and whom to fail based on skills, quality of foreign qualifications they do not understand, and wages proposed. Yet they have guidelines to do so, and that often involve the perfection to which paperwork is done than anything else! Whenever the unemployment increases, they just start rejecting more cases of Visas, immigrant and non immigrant, on grounds of imperfect paperwork or shot in the dark wrt assessing the qualification and experience of the worker applying. All this is supposed to protect the interests of the “US domestic workers”, but in fact, the opposite is true. Because of the convoluted procedures and approach, it takes many years for a worker to obtain a Permanent Resident status, during which s/he is employment-immobile, cannot start out on his/her own as an entrepreneur, and at the mercy of the sponsoring employer for granting him/her an appropriate wage, and promote correctly. This actually keeps wages in high skill professions depressed.

An alternative approach can be to survey businesses to establish the number of workers that will need to be imported in each profession – IT, Finance, and so on. Based on these numbers, allocate Visa and Green Card numbers to be given out that year. In granting Visas, go in decreasing order of wage offered to the immigrant worker. In granting Permanent Residence, go in decreasing order of the tax the person paid in preceding 5 years. This approach automatically favors the professionals that are the best contributors into the economy (as producers and consumers) and the welfare system, and truly most needed by employers because the wage paid says more than anything else on this matter; while, with the numerical caps, also prevents the displacement of “US workers” by wage undercuttingNo file-by-file procedure Bureaucracy or employer sponsorship or expensive attorney representation required to run this - this can work more like applying to DMV for a driver's license with a few required documents or merely the SSN.. This approach also incidentally increases the concentration of such people in society that will be able to stomach a complete breakdown, or partial or complete rollback, of the welfare system should it occur.
This is a slight variation/improvement to a previous post on this topic: Market Based Skilled Immigration.


Have a tax system that does not put disproportionate burden on the working man and the real economy entrepreneur.

I have argued that corporate taxation is not dual taxation of the same income, and abolishing it harms the objective of individual liberty than supports it. I have further argued that closing corporate taxation loopholes, while cutting taxes on real world individual income, will amount to tapping the wild corporate surplus that is only adding money for corporate treasury operations, and bring more disposable income in the real economy. This author has also argued that higher taxes on brick and mortar income compared to finance are a corrosive relic from the bygone era of credit bubble driven economic flow, that is begging elimination. Doing these things to bring lower rates to the real economy and the real entrepreneur, alongwith elimination of compliance paperwork, will envigorate the mainstreet, orienting it to fresh growth.

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